Shares of Grocery Outlet (NASDAQ:GO) fell 18.5% Wednesday following the release of the discount supermarket chain’s first-quarter results.
Grocery Outlet’s net sales decreased by 1% to $752.5 million, driven by an 8.2% decline in comparable-store sales. The company faced tough comparisons with the year-ago quarter when same-store sales jumped 17.4% as people stocked up on food and other supplies during the early stages of the coronavirus crisis.
Grocery Outlet furthered its expansion strategy, with 10 new store openings during the quarter. “We remain committed to our long-term algorithm of expanding our store base 10% each year while continually reinvesting in our business,” CEO Eric Lindberg said in a press release.
These growth initiatives, however, continued to weigh on the company’s profitability. Its adjusted net income dropped 19.6% to $23.1 million, or $0.23 per share.
Management believes Grocery Outlet has a long runway for expansion still ahead. The company says it has the potential to grow from its current base of roughly 390 stores to as many as 4,800 locations in the U.S. alone.
However, skeptics such as Quo Vadis Capital caution that Grocery Outlet’s reliance on its in-store operations could make it difficult for it to compete with rivals that have invested heavily in their e-commerce capabilities as more grocery sales shift online. “This is a permanent competitive disadvantage, in our opinion,” the firm’s analysts said.
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